Discussion:Personal Allowances on W-4
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Discussion Forum Index --> Consumer Questions --> Personal Allowances on W-4
| 22 March 2007 | |
| Hi everyone......I am currently an MST student and have a question about selecting the number of personal allowances on a W-4.
My problem is that when I run either the W-4 planner on turbotax or the IRS withholding calculator, they both tell me to take more personal allowances than I believe you are allowed to take. For instance, my girlfriend (24 years old) is single and independent. According to the personal allowances worksheet, she gets one exemption for herself since no one can claim her as a dependent, and an additional exemption for being single with only one job. Yet when I figure her W-4 through turbotax or the IRS withholding calculator, I am told that she can take up to four exemptions. Another example. My friend who just got married in 2006 works one job, and his wife is unemployed. No dependents. He should be able to take at max three exemptions (one for himself, one for being married with one job to an unemployed spouse, and one for his spouse). But turbotax or the IRS withholding calculator claim he should take 6 or 7 exemptions. Publication 919, How Do I Adjust My Tax Withholding states that "You can claim only the number of allowances to which you are entitled. To see if you can decrease your withholding by increasing your allowances, see the Form W-4 instructions and the rest of this publication." So my question is, if my girlfriend and friend are entitled to two and three exemptions, respectively, why are these W-4 calculators saying to claim twice that amount? | |
| 22 March 2007 | |
| I would ignore the calculators unless everyone is receiving a substantial refund year after year. I have always just claimed myself, although I am married with a child and could take up to three exemptions. I would have more money throughout the year, but when April 15th rolls around I would have to pay the piper. | |
| 22 March 2007 | |
| File the W-4 through the instructions. If you are eligible for the Advanced earned income credit, that may be why the discrepancy...don't know exactly why the calculators are out of sync, but for a single person..it is to be withheld at the single rate with one dependent..herself....
IF there is other income by virtue of self employment and some offsets against that, then it is up in the air what should be withheld. Quarterly tax payments if underwithheld, but it seems that the ppl you are speaking of get refunds...perhaps even EIC.... | |
| March 22, 2007 | |
| The best way to figure the number of exemptions is to do an estimated tax return to figure the estimated tax. Then use Publication 15 to determine how many allowances can be claimed in order to pay in enough tax each pay period to equal the tax you figured. You'll be surprised to find that the calculators work better than Publication 919. Quit thinking "what you are allowed to take" and think of it as the actual tax that should be paid each week in order to break even when the tax return is filed. | |
| 22 March 2007 | |
| I still don't understand why the calculators advise you to take more allowances than you are entitled to take. Either the calculators are incorrect, or the W-4 instructions are incorrect. Which one is it? | |
| March 22, 2007 | |
| The W-4 instructions. They don't allow for everyone's individual situation. There are many factors that determine how many allowances are actually correct. Earned income credit, additional child tax credit, other income in addition to wages, the various credits and adjustments that are available, and on and on. You have to quit thinking that there are a certain number of allowances that "you are entitled to take." There aren't.
It's the same with contributions and other deductions that people think there is some standard amount that everyone can deduct. "Did you make any contributions to charities?" "Yea, just put down the standard amount." "Sorry, there is no standard amount. It's whatever you actually gave." | |
| March 22, 2007 | |
| I agree with Deb. I usually (for my personal situation as well as clients') prepare an estimated/projected return to see what my tax liability will be. I then use a calculator that seems to work for me at paycheckcity.com to see what the # of allowances are that should be claimed on the W-4. Whatever that # is and as long as I'm paying in the estimated liability, I use...
just my 2 cents... | |
| 22 March 2007 | |
| The W-4 worksheets were designed for one reason only, to cause confusion. I would toss out the worksheet. If you are single & going to college, go single 0 on fed. & state. For married couples there are lot of factors to consider, total joint income, itemzing, children etc. My average rule of thumb is single 0 for both until I have a complete tax year (deductions) to look at then I start calculating what adjustments need to be made on the W-4 based upon my projections derived from client info. I would rather overwithold the first year & have happy clients than unhappy ones.
Dar | |
| March 22, 2007 | |
| Bx - Why not just use your regular calculator and divide the amount of the tax by 52? Then look in Pub 15 for that amount.
Dar - What if the clients don't want a large refund? It only takes a minute or two to figure the filing status and exemptions using Pub 15, and then your clients could have use of that large refund all year long. | |
| 22 March 2007 | |
| Agreed Deb....these people who want the large refunds are "loaning" money to the IRS all year long....why they think they are getting something for free at the eoy is beyond me. It is pay as you go...not pay before you go....that is my rule of thumb.... | |
| 23 March 2007 | |
| You are right Deb. I'm talking about if someone needs an immediate answer, while I am talking to them on phone,I go to Single 0. Now if I have time to figure it, with basic info, preferably not on the phone I try to tweak it so it fits their needs. If they want a small refund, I will advise so they will get the money during the year when they need it the most. If they are happy then I am happy.
Dar | |
| 23 March 2007 | |
| I ignore the calculations too
for anyone that is single with no dependents and no itemized deductions it is always Single-zero For married couples without dependents or itemized deductions it is Married-zero for the spouse with the higher salary and Single-zero for the other spouse. Form MFJ with dependents, add the number of dependents to the higher salary and the spouse stays Single-zero. MFJ w/ dependents and itemitized deductions, higher salary M plus #of dependents, plus (extra exemptions based on itemized deductions) spouse claims Single-zero. taxea | |
